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Title | Examining the dynamic relationship between spot and future prices of agricultural commodities |
Author |
Hernandez, Manuel A. Torero, Maximo |
ORCID | http://orcid.org/0000-0003-4754-8471 Hernandez, Manuel A.; http://orcid.org/0000-0002-4863-3371 Torero, Maximo |
Year | 2010 |
Abstract | This study examines the dynamic relationship between spot and futures prices of agricultural commodities. We first briefly discuss what the non-arbitrage and asset pricing theory has to say about the relationship between spot and futures markets. Next, using recent price data for corn, wheat, and soybeans, we perform Granger causality tests to empirically uncover the direction of information flows between spot and futures prices. Linear as well as nonlinear (nonparametric) causality tests are conducted on both spot and futures returns and their volatility. The results indicate that spot prices are generally discovered in futures markets. In particular, we find that changes in futures prices lead changes in spot prices more often than the reverse. These findings also contribute to the debate on alternative instruments to address excessive volatility in grain markets. Our results support, for example, the viability of implementing a global virtual reserve, recently proposed by von Braun and Torero (2008, 2009), to prevent disproportionate spikes in grain spot prices through signals and, if necessary, market assessment in the exchange of futures. |
Series Name | IFPRI Discussion Paper |
Series Number | 988 |
Publisher | International Food Policy Research Institute (IFPRI) |
Place of publication | Washington, D.C. |
Language | English |
Record Type | Discussion paper |
Peer Reviewed - PR or Non-PR | Non-PR |
Subject - keywords |
agricultural commodity markets spot prices futures prices granger causality |
IFPRI Descriptors | IFPRI1 |
IFPRI Division | MTID |
Access Rights | Open Access |
LOC call number | IFPRIDP00988 |
Physical description | 52 pages |
Times cited-- Google Scholar | http://scholar.google.com/scholar?cites=4523534013553027485&as_sdt=20005&sciodt=0,9&hl=en |
RePEc Downloads | https://ideas.repec.org/p/fpr/ifprid/988.html |
Requests | mailto:ifpri-library@cgiar.org |
CONTENTdm file name | 2259.cpd |
Date cataloged | 2016-09-07 |
Date modified | 2016-09-07 |
OCLC number | 861347661 |
CONTENTdm number | 2258 |
Description
Title | ifpridp00988 35 |
Access Rights | Open Access |
Requests | mailto:ifpri-library@cgiar.org |
CONTENTdm file name | 2241.pdfpage |
Date cataloged | 2011-06-15 |
Date modified | 2011-06-15 |
CONTENTdm number | 2240 |
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